How To Respond To A Cp2000 Notice?

[Redneck]

Amen

Amen Bees Knees

[Nora]

CP2000 Frequently Asked Questions

According to the CP2000 FAQ, will I need to file an amended returns if I agree with or all the proposed changes. Answer: Do not file an amended return for the tax year shown in the right hand corner of page 1. We will correct this tax year when we receive your response.

[Bees Knees]

According to the CP2000 FAQ, will I need to file an amended returns if I agree with or all the proposed changes. Answer: Do not file an amended return for the tax year shown in the right hand corner of page 1. We will correct this tax year when we receive your response.

True if you agree with all the proposed changes.

This poster says he doesn't agree with all the proposed changes, as he has additional deductions to take against the unreported income. Therefore, in my opinion, and per IRS instructions, a 1040X should be needed to claim those additional expenses.

Am I wrong?

[Nora]

Missed Important Word

It does mention some proposed changes, no need to amend return. I have spoken to them on several occassions and they normally do not want an amended return and have resolved issues without them. They suggest that if you want to do an amended return, it needs to be sent only to their department.

[DaveO]

I prepare an amended return

And write "Do not File" across it and send it with any related schedules the are affected by the changes. I have answered between 150 to 200 CP2000 notices in the last ten years in this manner and have never had the IRS adjust more than the penalty and interest. Although I have had to go appeals or the advocates office a few times.

[joanmcq]

I do a lot of these; I have a day job where pretty much all I do is CP2000 representation for self-preparers that mess up their returns. So we are talking about hundreds a year, for the last three years.

The thing is, you dont have to do the 1040X, just the corrected 1040 and applicable schedules. We stamp 'worksheet' on each one, unless we are sending in copies of the original return for some reason, like to dispute the taxability of a state tax refund for example, which we stamp 'copy'. Penalties are almost never assessed unless the tax due bill is over $5000, at which point the accuracy related penalty comes into effect, although the new penalty for requesting an inaccurate refund will now come into play when the error is overstating withholding. When there are penalites, you've gotta have a good reason to get them abated. Bees, I stated now it was almost impossible to get them abated. If the tax is reduced, of course the interest and penalties are too. Interest is never abated. But look again at the instructions. They say If you agree, don't agree, or partially agree with the changes, don't amend. Send in support for your position.

[Bees Knees]

Bees, I stated now it was almost impossible to get them abated. If the tax is reduced, of course the interest and penalties are too. Interest is never abated. But look again at the instructions. They say If you agree, don't agree, or partially agree with the changes, don't amend. Send in support for your position.

I see it. You are correct.

I have always sent the 1040X to the address of the CP2000 letter IF I am trying to take additional deductions not taken on the original return. If it is just additional income with no additional deductions, I don't do the 1040X. I agree it would be wrong to send the 1040X to the regular address if you get a CP2000.

Even if they don't need the 1040X, I still have to do one for the state. So I just send everything to both.

[joanmcq]

Yeah, the state often needs an amend. A lot of times the underreporter division will only handle the issues on the notice, and not another issue (try to get them to understand a change in the sales tax deduction due to rising/decreasing AGI!), but often we can submit other issues like a forgotten foreign tax credit and get it through too without the X. We are sending in what amounts to a corrected return, but just not the X along with it.

[bertrans]

Joan,

Instructions for Form 1040X say you use it to make corrections on a previously filed return. The previously filed return was in error.

When you owe additional tax on a CP2000 notice, how is it you are not liable for penalties?

In Buffalo’s scenario, he says they have unreported income, although that income is less than reported on the CP2000, due to additional legitimate expenses. In such a case, I have always prepared a 1040X along with the corrected Schedule C (per IRS instructions), and attached all of that to the CP2000 letter and mailed all of it to the address on the CP2000 letter.

You seem to do a lot of these. How is it that by NOT doing a 1040X, you get penalties abated, when clearly the taxpayer owes the penalty for unreported income? And why would an accuracy related penalty be any different doing a 1040X verses not doing one?

Educate me, please: what is WRONG with doing a 1040X (per IRS instructions) and sending it to the CP2000 letter address, like Buff's accountant wants to do?

I agree that a 1040X is the appropriate response to a CP-2000, if your client wants to 'negate' some of the underreported income by increasing deductions: e.g., Sch C expenses in response to underreported nonemployee compensation.The most common mistake on a 1040X as a response to a CP-2000 is to fail properly to adjust the total figures for both the underreported income AND the additional deductions. IF the client agrees with all aspects of the CP-2000, then have him sign it and submit it - no 1040X needed in that case. If the overall result of underreported income is a deficiency, there will be applicable penalties. - e.g., delinquency, substantial understatement.

[joanmcq]

The most common CP2000 is for stock sales not reported. Would you do an X when all you need to do is send in a Sch D with basis to get the tax reduced, or get a refund? I don't and get reductions/refunds all the time, and that is just with the corrected 1040 and the D. If there is a complete redoing of the return, I might do an X. But more often, we correct the notice, and then amend after the notice issue is reconciled.

[Peachie]

One final analysis to the corrected vs 1040X, please

And write "Do not File" across it and send it with any related schedules the are affected by the changes. I have answered between 150 to 200 CP2000 notices in the last ten years in this manner and have never had the IRS adjust more than the penalty and interest. Although I have had to go appeals or the advocates office a few times.

I am bringing this back again because I have a similar situation to the one that started this topic. I have done both a corrected and a 1040X and am ready to mail-Only after speaking to my peers here.

Here are the summarized facts:

T/P that I've done her taxes for years decides to go elsewhere last year to have her taxes done-received a notice from IRS for a proposed change to taxes owed because preparer didn't include $10,000 in lottery winnings. Shows an additional $1700 due. Of course, here she comes for me to fix. First thing I noticed is several errors on the return prepared by 2006 preparer. Best thing for me to do was to prepare the return correctly, including the $10,000 additional income and a $10,000 reduction on the schedule A. Believe it or not, this woman had 2 bags of receipts that she had itemized that came to more than $15,000 for her proof of losses.

Long story-short-newly prepared return has her owing the Feds $250 and the State $134. I have her checks ready to go--Return is due April 15--just how the date fell.

I have always amended the returns with no problem. However, this discussion has made me rethink what I should do. Since I have done both--she's paying all of my fees-should I send them both with the CORRECTED RETURN being my main focus and the 1040X as just an additional part or just send the CORRECTED RETURN? I have read this thread over and over and still can't decide what to do. It seems that I may not be wrong either way and I don't know why I am questioning myself having done many amendeds, but that was before I came here.

Please help the Georgia Peach.

Thanks.

[fliszt]

Thank you everyone!

This post came along at a great time for me!! Saturday 3/31 I got a phone call from client who rec'd CP2000 for year 2006. They brought it over right away. It says the owe an additional: $28,511 tax; $5,702 Inaccuracy; $2,755 interest. Total $36,968. This is the largest one I've seen.
Client says didn't receive 1099B from company. Original company was sold on 4/26/06 and finance handled by Smith Barney and new company's plans are managed by Mellon. It appears not all papers got transfered because Smith Barney doesn't have them and Mellon doesn't have them. The IRS notice shows Smith Barney as issuer. If you readers agree, I intend to ask IRS to send copies of all the 1099B's they have. Some are restricted stk sales and some are espp sales. And some small ones are 1099 INT & DIV. Client is currently searching records for cost basis on all sales. We have until 4/16 to reply. Now, Bees, do I send a 1040X or a corrected 1040? I plan to attach a letter with the reasons for mis-reporting income. Any further help not on this thread would surely be appreciated. I may have not given sufficient information so please accept my apology for that.